Are you torn between choosing an FHA Loan over a Conventional Loan? Both are an excellent choice when it comes to helping you finance your dream home purchase. However, you can only choose one, so which one would it be?
For you to get the best deals, one needs to choose the right mortgage type. Here are seven comparisons worth noting to help you decide whether an FHA Loan or a Conventional Mortgage Program is for you.
Unlike Conventional home loans, FHA loans are assumable mortgages. This only means that a homebuyer can assume an outstanding FHA Mortgage from a current owner to acquire homeownership.
When it comes to your credit score, FHA mortgages typically requires you to have at least a 580 FICO score. Some lenders will even approve borrowers who have a credit score of 500. For Conventional Loans, you’ll need to have at least 620 minimum FICO score.
Down Payments and Down Payment Assistance Programs
The minimum down payment required to qualify for an FHA mortgage is 3.5%. Conventional loans, on the other hand, used to require a higher down payment. But today, the minimum required down payment can go for as low as 3% of the home purchase price. There are DP Assistance Programs available for FHA mortgages but none for Conventionals. It’s also worth noting that FHA does allow homebuyers who have 100% of their DPs to be a gift while Conventional will only allow a portion of it to be a gift.
Conventional Mortgage usually has a higher interest rate than FHA loans. However, one may need to pay a lower monthly payment amount depending on your down payment.
There is a different set of loan limits in every county for FHA Loans. For example, you wish to apply for a mortgage, and you already submitted your FHA loans Texas requirements to your trusted broker. Depending on the housing types and your county, you can get a different FHA loan limit for as low as $314,827 or as high as $760,750. As for Conventionals, the current maximum loan you can get is at $453,100.
Once approved for an FHA loan, one needs to pay for Mortgage Insurance upfront and then monthly for the duration of the loan. In Conventional Loans, you won’t need to pay for MI if you spent 20% or more down payment.
When you apply for a conventional loan, it is not a requirement that the person who bought the house should be the one who will reside on the property. This means you can make a home purchase to finance a rental property, primary residence or even a vacation home. FHA Loans, on the other hand, requires the house to be owner-occupied.
One can choose to refinance an FHA and Conventional Loan to save money. However, there are terms and conditions you need to meet, and you’ll need to qualify to get approved.
FHA and Conventional Mortgages has its pros and cons. However, if you’re a homebuyer with a lower credit score, can only afford a small down payment and is one looking for a cheaper upfront cost, then consider applying for FHA Loans.